WOTC, the Work Opportunity Tax Credit, is a point-of-hire tax incentive provided by the federal government that rewards businesses for hiring employees from certain target groups. These groups of people constantly face employment barriers and have traditionally held high unemployment rates. If you hire an applicant who qualifies for WOTC, you may receive a reduction to the amount of taxes you owe.
As determined by the IRS, target groups include:
- Qualified Veterans
- Unemployed Veterans
- Long Term Unemployed
- Long Term Family Assistance Recipients
- Food Stamp Recipients
- Supplemental Security Income (SSI) Recipients
- Welfare Recipients
- Summer Youth
- Designated Community Residents
- Vocational Rehabilitation
The Work Opportunity Tax Credit is calculated based on your employees’ wages and on the number of hours they work. It’s important to understand that existing employees cannot be screened for WOTC, since it’s offered as a point-of-hire credit. Only new applicants may be screened, and they cannot have worked for you before.
Depending on where you are located, your state likely will offer tax credits to encourage businesses to hire employees from, and invest in, the target groups that are listed above. If you hire individuals from any one of these groups, you may be eligible to receive what is known as a “WOTC Piggy-Back Credit”. Employees or applicants who qualify for WOTC may also qualify for these Piggy-Backs; you may be able to get State credit using the same screening process that is used for WOTC—hence the name for these additional credits.
States that have WOTC Piggy-Back Credits include:
- New Mexico
- New York
- North Dakota
- South Carolina
These State credits can range from several hundred dollars up to $35,000 per qualifying employee (up to 40% of first year wages for certified workers). Currently, WOTC is authorized for any new hires that have occurred after December 31st, 2014, and before January 1st, 2020. Any unused credits may be either carried back one year or carried forward for 20 years.
Businesses can claim billions of dollars each year in tax credits under the federal Work Opportunity Tax Credit and the accompanying Piggy-Back Credits. Unfortunately, however, it often happens that employers hire individuals who qualify for WOTC (and additionally, WOTC Piggy-Back Credits) and neither the employee nor employer know it.
If you need help identifying the WOTC Piggy-Back Credits that are available to you due to your location and would like to receive the maximum tax credit possible, give Tax Credit Group a call; we’re here to help.